Why Isn't Minimum Wage Enough?

The federal minimum wage was enacted through the Fair Labor Standards Act of 1938. Its purpose was to eliminate “labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency and general well-being of workers.” Despite these intentions, the federal minimum wage has failed to keep up with the rising cost of living, and has instead become a wage that keeps working people in poverty.

Although the dollar amount (nominal value) of minimum wage has increased over time, every year it takes more money to purchase the same goods and services. So the real value of minimum wage has actually decreased since 1960. In 1968, the value of minimum wage was equivalent to $10 today, which is almost a living wage!

In 2009, the federal minimum wage was increased to $7.25. Since then, rising costs of housing and health care combine with inflation to drastically lower the real value of minimum wage today. Noone working fulltime at minimum wages – or even several dollars higher – can maintain “the minimum standard of living.”

The Fair Labor Standards Act of 1938, U.S. Department of Labor.

What is a minimum standard of living?

The purpose of minimum wage, according to the Fair Labor Act, is to enable workers and their families to afford “the minimum standard of living necessary for health, efficiency and general well-being.”

But how do we measure “the minimum standard of living”? And is the federal poverty threshold a reasonable minimum standard of living?

The poverty threshold was established for statistical purposes, as a means of having something to measure against during the John F. Kennedy and Lyndon Johnson eras and the “War on Poverty.” It is calculated using a method developed in 1963 by the economist Mollie Orshansky. The federal poverty threshold is based on the cost of food and the assumption that food accounts for one-third of a person’s expenses. Using this formula (the USDA Thrifty Food Plan multiplied by 3) the poverty threshold for one adult in 2010 is $11,161.

Although the poverty threshold is adjusted annually, it does not account for the rising costs of housing, childcare, health care and transportation, which now represent a much larger portion of a family’s budget. The poverty threshold also does not factor in regional differences in the cost of living. The U.S. Census Bureau states that purpose of the poverty threshold is, in fact, to act “as a statistical yardstick, not as a complete description of what people and families need to live.”

For this reason, organizations such as Orange County Living Wage, Asheville's Just Economics, Durham Living Wage Project, and living wage groups throughout the U.S., United Kingdom, and elsewhere, strive to more accurately calculate a minimum standard of living for workers and their families.

The living wage movement is based on the premise that wages should keep workers and their families above the minimum standard of living rather than just above the poverty threshold.